Every generation has been convinced they'd never be able to retire, and every single one of them has been wrong.
A new study shows Americans expect to delay retirement by four years as the cost of living rises. Four in 10 aren’t confident they’ll have enough money to last. And another study found that Americans now feel they need 15% more for retirement than they did just a year ago.
If those stats sent you into a full-blown panic, you might want to take a breath. Because here’s what 300 years of American financial history has to say about it: we’ve felt this before. Your parents have felt this. Their parents have felt this. And every generation has ended up being absolutely fine.
That’s the argument Joseph S. Moore, PhD, makes in his new book, How to Get Rich in American History: 300 Years of Financial Advice That Worked (and Didn’t). Moore sat down with Jean Chatzky on this week’s episode of the HerMoney podcast to explain what history has to teach us about how to save for retirement.
Retirement Stacking: The Strategy Americans Used Before Social Security
The concept Moore calls “retirement stacking” is at the heart of his book, and it’s older than Social Security itself.
“One of the myths I bust in the book is the idea that no one retired before Social Security,” he said. “They absolutely retired before Social Security. One of the things people did was they would try to create legs on a stool, studs in a wall, some kind of support system that would balance out over time. Sometimes it was land. Sometimes it was businesses. People were basically putting money away into plans that would help them survive their old age.”
And Moore says the math is more reassuring than most people realize. “If you just tried to retire on the median 401(k) balance, in every historical scenario you run, you’re out of money by the age of 71. And yet, if you combine that with Social Security, which is also a meager thing to live on, the most common scenario combined is that the average retiree dies with more money than they started with.”
Why Annuities Got a Bad Reputation — and Why They Deserve a Second Look
Annuities are a cornerstone of retirement stacking, and Moore wants to rehabilitate their image.
“The insurance companies did not do themselves any favors over time. They did become predatory products. So if you’re looking to buy an annuity, you need to get it from a very reputable and preferably fiduciary who is going to put your best interest at heart,” Moore said.
On the plus side, he offers that annuities give us something better than high stock returns: peace of mind. “Think about what insurance is,” he said. “Insurance is selling your risk to someone else. They’re giving you money, and they’re taking your risk. What you’re taking off the table is the risk that you will not have money when you’re 75 years old, and you need it.”
Jean Chatzky responded: “Knowing that you have at least your fixed expenses covered by some sort of income that is going to last as long as you do, that gives you the ability to take more risk with the money you have in stocks.”
And Moore agreed: “You get the best of both worlds.”
How To Save For Retirement: The Principles That Have Stood the Test of Time
Moore closed the conversation with the distilled lessons he found that have worked across American history:
- Go solve somebody else’s problems. You’re probably going to make most of your money solving the problems of someone else.
- Take some risks. Once you’ve covered your downside, you can go for a really big upside.
- Move more. Geo-arbitraging to somewhere cheaper is one of the biggest, most successful strategies in American history.
- Marry well. Invest in your relationships. That stands the test of time.
- Believe that you can get ahead, because you actually can.
His closing message for anyone in their 50s who feels behind: “The American dream is not dead. Over and over again in American history, optimism is what gets over-rewarded with outsized gains. People succeeded in much harder times. I promise you, you can do it today.”
MORE ON HERMONEY:
- The Ambition Penalty: Why Women Are Still Being Punished for Wanting More
- 10 Things You Should Do When Retirement is 10 Years Away
- Ask Jean: “How Do I Sell A Bar Of Silver?”
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